Question 1

Best National Bank is subject to a 10 percent required-reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of

Accepted Answer

The bank is subject to a 10 percent required-reserve ratio, which means it must hold onto 10 percent of the new deposit, or $100. The remaining $900 can be lent out as new loans.

Question 2

Which of the following most clearly limits the ability of the commercial banking industry to expand the money supply?

Accepted Answer

Reserve requirements mandated by the Fed limit the ability of commercial banks to expand the money supply because they require banks to hold a certain percentage of deposits as reserves, rather than loaning out all of their deposits. This reduces the amount of money that banks can lend out, and therefore limits the expansion of the money supply. The number of commercial bank charters issued by the Fed, the dollar value of the bonds issued by the U.S. Treasury, and the federal funds interest rate can all indirectly affect the ability of banks to expand the money supply, but reserve requirements are the most direct and significant limitation.

Question 3

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits, then bank reserves will

Accepted Answer

The answer of Suppose that in a country people gain...

Question 4

Excess reserves of banks equal

Accepted Answer

Excess reserves of banks are the amount of actual reserves held by banks above their required reserves. Therefore, the formula for excess reserves is actual reserves minus required reserves.

Question 5

Excess reserves are

Accepted Answer

Excess reserves are the actual reserves that banks hold above the required reserve ratio mandated by the Federal Reserve. It is the difference between total reserves and required reserves. It acts as a buffer against potential bank runs and helps banks to expand their lending.

Question 6

Suppose the Fed purchases $40,000 of U.S. Treasury bonds from Donald Trump, who deposits the money with First National Bank. If the required reserve ratio is 20 percent, this transaction will increase the excess reserves of First National Bank by

Accepted Answer

When the Fed purchases Treasury bonds, it pays for them by depositing money into the seller's bank account. This increases the bank's reserves, and if the required reserve ratio is 20 percent, then the bank can hold onto 20 percent of the deposit as required reserves and lend out the rest as excess reserves. In this case, the deposit is $40,000, so the bank can hold onto $8,000 (20 percent) as required reserves and lend out the remaining $32,000 as excess reserves. Therefore, the transaction will increase the excess reserves of First National Bank by $32,000.

Question 7

In order to increase the money supply, the banking system must have

Accepted Answer

Excess reserves are the funds held by banks in excess of the required reserves. If the Fed wants to increase the money supply, it can lower the reserve requirement ratio, which increases the amount of excess reserves held by the banks. This, in turn, enables the banks to loan more money, thereby increasing the money supply. Therefore, excess reserves are necessary for increasing the money supply.

Question 8

When the actual reserves held by a bank exceed the legal requirement, the bank

Accepted Answer

When a bank has excess reserves, it means that it has more funds available than required by the reserve requirement. These excess reserves can be used by the bank to extend additional loans. Therefore, choice B is the correct answer. Choices A, C, and D are incorrect as they do not apply in this situation.

Question 9

Assuming a 20 percent legal reserve requirement, a new deposit of $10,000 in a commercial bank will place that bank in a position to lend out an additional

Accepted Answer

With a 20 percent legal reserve requirement, the bank is required to hold $2,000 (20% of $10,000) in reserves and can lend out the remaining $8,000.

Question 10

Jeff Kaufman decides to bank with Paris First National Bank (PFN). He opens a checking account by depositing $1,000. According to the PFN balance sheet, after this initial $1,000 checkable deposit, there are $1,000 in

Accepted Answer

When Jeff Kaufman deposited $1,000 in his checking account at PFN, the bank's reserves increased by $1,000 because they now hold more money in their vault. At the same time, Jeff Kaufman's account now has a balance of $1,000, which counts as checkable deposits on the bank's balance sheet. Therefore, the correct option is A) reserves and $1,000 in checkable deposits.

Question 11

A bank that has $10,000 in excess reserves can extend new loans up to a maximum of

Accepted Answer

Excess reserves refer to the amount that a bank has in its reserves above the required reserves. The required reserves are the minimum amount of reserves that a bank is required to hold by the central bank. Based on the given information, the bank has $10,000 in excess reserves. This means that the bank can lend out up to $10,000 without incurring any additional reserves requirements. Therefore, the maximum new loans that the bank can extend is $10,000.

Question 12

If the public decides to hold more currency and fewer deposits in banks, bank reserves

Accepted Answer

If the public holds more currency and fewer deposits in banks, banks will have less deposits to work with and will have to decrease their loans. This, in turn, will decrease the bank reserves and ultimately the money supply will also decrease.

Question 13

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is

Accepted Answer

The answer of If a bank has actual reserves of...

Question 14

The money multiplier will be

Accepted Answer

The answer of The money multiplier will be
...

Question 15

Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the First National Bank has no excess reserves. If a new customer deposits $50,000, the bank could extend new loans up to a maximum of

Accepted Answer

With a reserve requirement of 20 percent, the bank must hold onto $10,000 of the $50,000 deposit as reserves. This leaves $40,000 available for new loans, as the bank cannot lend out more than its excess reserves.

Question 16

If the Fed injects additional reserves into the banking system, why will banks generally want to expand their loans and investments?

Accepted Answer

The banks will generally want to expand their loans and investments because loans and investments generally earn more interest income for the banks than excess reserves. Banks have an incentive to lend out excess reserves to earn interest income and increase their profits.

Question 17

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

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The answer of The immediate effect of a member bank's...

Question 18

If the public decides to hold less currency and more deposits in banks, bank reserves

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Question 19

If First Guarantee Bank confronts a 10 percent reserve requirement and has excess reserves of $2,000,000, what is the maximum amount of additional loans that the bank can extend?

Accepted Answer

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Question 20

An individual bank can lend out at most its

Accepted Answer

The answer of An individual bank can lend out at...

Quiz 13: A : Money and the Banking System